Start-ups driving growth forecasts in a small business sector rocked by market uncertainty

Start-ups are bringing much-needed optimism to the small business sector for 2023. Nationally, 63% of small business start-ups predict growth for Q1 2023, up from 49% last quarter and 44% this time last year. In contrast, for established small businesses (those with a turnover up to £1 Million), growth outlook has been static at 27% - largely unchanged for four consecutive quarters – and, for larger enterprises, the percentage predicting growth has fallen sharply to 33% - down from 43% last quarter and 52% this time last year[1].

These are some of the latest Business Barometer findings by Novuna Business Finance, a study that has tracked small business outlook every quarter since 2015. Rather than looking at confidence as a feeling or opinion, the Novuna study tracks the percentage of enterprises that predict material growth for the next three months.

The latest findings suggest that, nationally, small business growth predictions are largely unchanged on previous quarters - but, within this, there are both promising and concerning indications for the year ahead. On the upside, Novuna’s latest data reveals that for the third consecutive quarter, the proportion of small businesses predicting growth for the next three months has remained remarkably stable at 33% - suggesting an underlying resilience despite a very challenging economic context.  Of concern, the Novuna data also suggests that, since 2017, small business figures for Q1 each year have usually been the high-point for the year that follows – and Q1 2023’s figures are well below the 36%-40% range that historically has dominated the first quarter of each year dating back to 2015 (the only exception being Q1 2021, when the UK started a New Year in lockdown).

Percentage of small businesses predicting growth

A comparison with Q1 findings over previous years

Further, whilst the national figures for Q1 2023 present a short-term picture of consistency with the previous few quarters, the Novuna data reveals significant variations by sector and region for the current quarter. This questions whether a national picture of economic health can meaningfully be presented in the current, volatile economic climate.

Growth outlook by industry sector

By industry sector, there is a huge range difference – between 21% and 45% - in the percentage of small businesses predicting growth for the next three months. Whilst growth outlook in the Media (45%) and IT/Telecoms (42%) sectors remained consistent with last quarter, there were marked quarter-on-quarter rises in Manufacturing, Medical Services and Agriculture.

Sectors where more small businesses predict growth

Set against this, over the last 12-months there have been sharp and continued falls in growth outlook for enterprises in the Hospitality, Construction, Transport, and Legal Services sectors. Clearly, there is no universal picture on how UK small businesses are reacting to market uncertainty. Some are able to adapt and grow, whilst some sectors appear to be in decline.

Sectors where fewer small businesses predict growth: A 12-month view

Regional outlook: The East-West growth divide

Whilst political and financial commentators have often talked in the past about a North-South divide, the latest Novuna Business Finance study suggests an East-West divide is emerging, in terms of small business growth forecasts. In The North East, East Midlands and East, the percentage of small businesses predicting growth has fallen – and even in the South East it has stagnated. In contrast, small businesses in the North West, West Midlands, Wales and the South West all recorded a rise in the percentage of small businesses predicting growth up until the end of March.

The West – percentage of small businesses predicting growth is going up

 The East – percentage of small businesses predicting growth is going down

Jo Morris, Head of Insight at Novuna Business Finance comments: "Despite the bleak economic forecasts at the start of this year, our latest tracking data shows underlying resilience from established small businesses. At a time of rising prices and supply chain disruption, the growth forecasts from established enterprises show them to be holding firm, whilst start-up businesses seem to be embracing market uncertainty as an opportunity to disrupt and innovate.

“The results by sector and region present a picture of volatility but the one thing every small business has in common at the moment is the need to accept uncertainty. Whether growing, restructuring or consolidating, every business needs a plan and Novuna Business Finance will be there to support established enterprises that are working on strategies to adapt, grow and fulfil their potential despite the enormously challenging context."

Note to editors

[1] The Novuna research classified small business size by turn-over. Established businesses were small enterprises with a turnover of up to £1 Million in the previous – and larger enterprises were small businesses with an annual turnover of £1-10 Million. Start-ups where those enterprises in their first year that, as yet, to not have annual turnover figures from previous years of activity.